Study your flashcards anywhere!

Download the official Cram app for free >

  • Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off
Reading...
Front

How to study your flashcards.

Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key

Up/Down arrow keys: Flip the card between the front and back.down keyup key

H key: Show hint (3rd side).h key

A key: Read text to speech.a key

image

Play button

image

Play button

image

Progress

1/64

Click to flip

64 Cards in this Set

  • Front
  • Back
Which of the following factors is least likely to be a barrier limiting the entry of potential competitors into a market? a. legally enforced patent rights
b. an inelastic demand for a product
c. licensing
d. control over an essential resource
b. an inelastic demand for a product
A law that requires hairdressers to undergo many hours of training and acquire a license before they can offer haircuts to the public, is an example of a a. positive externality.
b. natural monopoly.
c. barrier to entry.
d. public good.
c. barrier to entry.
Which of the following is most likely to contribute to the presence of monopoly in an industry? a. economies of scale
b. an elastic market demand for the product produced by the industry
c. inefficiency due to bureaucratic decision-making procedures in the industry
d. controlling over 50 percent of the market
a. economies of scale
4. Which of the following provides the most secure protection for a firm with monopoly power?
a. quality advertising
b. legal barriers restricting entry into the market of the monopolist
c. predatory pricing
d. limited economies of scale
b. legal barriers restricting entry into the market of the monopolist
5. Economic analysis suggests that patent laws that can often be used to limit the entry of potential competitors into an industry
a. redistribute income from consumers to business decision makers without affecting the allocation of resources.
b. may be a source of business monopoly power, but they may also encourage innovation in the long run.
c. encourage product development and the adoption of cost-reducing technologies in the short run but in the long run generally lead to business monopoly.
d. help inventors at the expense of consumers in the long run.
b. may be a source of business monopoly power, but they may also encourage innovation in the long run.
6. Which of the following accurately describes a major difference between a monopolist and firms in competitive markets?
a. The monopolist maximizes profit; firms in competitive markets maximize sales.
b. The monopolist may earn long-run economic profit; firms in competitive markets cannot.
c. The monopolist is a price searcher; firms in other markets are price takers.
d. The monopolist is a price taker; firms in other markets are price searchers.
b. The monopolist may earn long-run economic profit; firms in competitive markets cannot.
7. Which of the following best fits the definition of a monopoly?
a. the local cable company
b. IBM, the world’s largest manufacturer of certain types of computers
c. Panasonic, the only company that sells Technics brand of stereos
d. General Motors
a. the local cable company
8. A monopolist will maximize profits by
a. setting his price as high as possible.
b. setting his price at the level that will maximize per-unit profit.
c. producing the output where marginal revenue equals marginal cost.
d. producing the output where price equals marginal cost.
c. producing the output where marginal revenue equals marginal cost.
9. If a monopolist wants to maximize profit, what price should he charge?
a. the highest possible price
b. the price where marginal revenue equals average variable cost
c. the price where average total cost crosses the demand curve
d. the price on the demand curve associated with the MC = MR output
d. the price on the demand curve associated with the MC = MR output
Use the table to answer the following question.
Price Units of Output Total Cost
(dollars) (quantity demanded) (dollars)
25 800 20,000
24 875 20,550
23 930 21,100
22 995 21,650
21 1,060 22,200
10. The demand and total cost schedules of a monopolist are presented in the table above. What price should a profit-maximizing monopolist charge?
a. $24
b. $23
c. $22
d. $21
a. $24

profit = TR-TC, TR= Price X Quatity
11. Which of the following is a unique characteristic of the oligopolistic market structure?
a. low barriers to entry
b. a large number of firms producing highly differentiated products that are complements to each other
c. product differentiation among the products produced by individual firms
d. mutual interdependence among firms in demand, and thus, in price decisions
d. mutual interdependence among firms in demand, and thus, in price decisions
12. If mutual interdependence among firms is present, each profit-maximizing firm in the market
a. produces a product that must be identical to the products of its rivals.
b. must consider the reactions of its rivals when it determines its price policy.
c. faces a perfectly elastic demand curve for its product.
d. faces a perfectly inelastic demand curve for its product.
b. must consider the reactions of its rivals when it determines its price policy.
13. The two conflicting tendencies that a firm has in an oligopolistic industry are the incentive to
a. cheat to maximize joint profits and the incentive to raise prices.
b. cheat and avoid collusion and the incentive to raise price to maximize the firm’s share of profits.
c. increase output in order to minimize per-unit costs and the incentive to reduce price in order to maximize joint profit.
d. cooperate to maximize joint profits and the incentive to cheat on the agreement in order to increase the firm’s share of the profit
d. cooperate to maximize joint profits and the incentive to cheat on the agreement in order to increase the firm’s share of the profit
14. Which of the following is an important side effect of government licensing and other grants of monopoly power?
a. The number of options available to consumers is increased.
b. Competition is enhanced.
c. Firms will produce more efficiently.
d. Rent-seeking is encouraged.
d. Rent-seeking is encouraged.
15. Fig.1 The cost and demand conditions for a monopolist are depicted in Figure 1. If the monopolist is maximizing profit, it will charge a price of
a. $30 and produce an output of 4,000.
b. $40 and produce an output of 4,000.
c. $40 and produce an output of 2,000.
d. more than $40.
c. $40 and produce an output of 2,000.
16. Fig 2. What output would a monopolist with the demand and cost conditions depicted in Figure 2 produce if ordered by regulators to serve the entire market at average cost?
a. OR
b. OS
c. OT
d. OU
b. OS
17. Given the cost and revenue curves illustrated in Figure 3, what price will a profit-maximizing monopolist charge?
a. P1
b. P2
c. P3
d. P4
d. P4
18. If the monopolist is regulated by the “marginal cost pricing” technique, what price in Figure 3 will be charged?
a. P1
b. P2
c. P3
d. P4
c. P3
19. Which of the following is the best example of an investment in human capital?
a. on-the-job training received by an apprentice electrician
b. an increase in the number of hours worked per week by a worker in an unskilled laboring job
c. the purchase of company stock by a worker
d. payments into a retirement pension plan by a skilled laborer
a. on-the-job training received by an apprentice electrician
20. When the price of a resource goes up and firms seek other suitable resources, this is called the
a. substitution in production effect.
b. substitution in demand effect.
c. elasticity effect.
d. inelasticity effect.
a. substitution in production effect.
21. The demand for a resource depends largely on the
a. demand for the products that it produces.
b. price of the resource.
c. supply of the resource.
d. cost of producing the resource
. demand for the products that it produces.
22. The change in the total revenue of a firm that results from employing one additional unit of a factor of production is defined as the
a. total revenue product of the resource.
b. marginal product of the resource.
c. marginal revenue product of the resource.
d. average revenue product of the resource.
c. marginal revenue product of the resource.
23. (I) The marginal product (MP) of a resource will fall as employment of the resource expands.
(II) The marginal revenue product (MRP) of a resource will rise as employment expands.
a. Both I and II are true.
b. I is true; II is false.
c. I is false, II is true.
d. Both I and II are false.
b. I is true; II is false.
Use the information in the accompanying chart to answer the following two questions. The firm hires labor competitively and sells its product in a competitive price-taker market.
Units of Labor Total Output Product
(per day) (dollars) Price
1 15 6
2 30 6
3 40 6
4 48 6
5 54 6
6 59 6
7 62 6
24. What is the marginal revenue product of the fifth unit of labor?
a. $6
b. $36
c. $54
d. $324
b. $36

54-48=6
6*6=36
25. If the market wage rate is $25 per day, how many workers should the firm hire if it wants to maximize profits?
a. 4
b. 5
c. 6
d. 7
c. 6
26. Harold Brown runs a company that sells encyclopedia sets for $250 each. When he employs 10 workers, they can sell 60 sets per week, while only 54 sets are sold when 9 workers are employed. What is the weekly marginal revenue product of the tenth worker?
a. $250
b. $1,250
c. $1,500
d. $15,000
c. $1,500
27. Jim Smith runs a company that sells encyclopedia sets for $200 each. When he employs 5 workers, they can sell 20 sets per week, while only 17 sets are sold when 4 workers are employed. If the wage of workers in this skill category is $500 per week, should the fifth worker be hired?
a. No, because the MRP of the fifth worker is less than $500 per week.
b. No, because the MRP of the fifth worker is more than $500 per week.
c. Yes, because the MRP of the fifth worker is less than $500 per week.
d. Yes, because the MRP of the fifth worker is more than $500 per week.
d. Yes, because the MRP of the fifth worker is more than $500 per week.
28. If there is a shortage of nurses, it is expected that
a. wages for nurses will go up as hospitals try to fill these positions.
b. wages for nurses will go down because of the increased competition between hospitals.
c. the return on the human capital investment of current nursing majors will decline.
d. wages for nurses currently practicing will increase, but new nurses will experience lower wages in the future.
a. wages for nurses will go up as hospitals try to fill these positions.
29. An unanticipated decline in the demand for legal services will
a. increase both the wages of lawyers and the rate of return they can expect to derive from their legal education.
b. lead to a shortage in the market for legal services.
c. reduce the wages of lawyers but not the quantity of legal services supplied.
d. reduce the wages of lawyers and the rate of return on a legal education..
d. reduce the wages of lawyers and the rate of return on a legal education.
30. Other things the same, the wages in an occupation are likely to be higher the more
a. dangerous the job.
b. prestigious the work environment of the occupation.
c. desirable the location of the job.
d. pleasant the working conditions.
a. dangerous the job.
31. Window cleaners that work the top floors of high-rise office buildings are, on average, paid approximately 30 percent more an hour than those that clean windows on the bottom floor. This is an example of
a. employment discrimination.
b. job benefits.
c. irrational wage compensation.
d. compensating wage differentials.
d. compensating wage differentials.
32. When employment discrimination results from the personal prejudices of employers, economic theory suggests that
a. competitive forces will tend to reduce discrimination.
b. the wages of employees who are discriminated against will rise.
c. an employer who discriminates will have the same costs as those who do not discriminate.
d. discrimination by an employer will reduce production costs since the employer can pay lower wages.
a. competitive forces will tend to reduce discrimination.

it cost more to discriminate. lawer etc.
33. Suppose that Japanese and Chinese workers are equally productive, but Japanese workers receive a higher wage than Chinese workers. Then, refusing to hire Chinese workers would
a. increase the firm’s costs.
b. decrease the firm’s costs.
c. increase the firm’s profits.
d. decrease the firm’s profits.
e. do both a and d.
e. do both a and d.
34. Wages in the United States are higher than wages in China primarily because
a. worker productivity is higher in the United States.
b. in the United States, less capital is required per employee.
c. China has more natural resources that employees can work with.
d. the United States has more people and, therefore, a larger number of skilled workers
a. worker productivity is higher in the United States.
35. Economists refer to consumers’ desire for goods now rather than in the future as
a. a positive rate of time preference.
b. the rational expectations hypothesis.
c. roundabout methods of production.
d. the inflationary premium.
a. a positive rate of time preference.
36. If Michael has a positive rate of time preference, he will
a. prefer to have goods now rather than two years from now.
b. prefer to have goods two years from now rather than during the current period.
c. prefer apples to oranges.
d. be unwilling to pay an interest rate in order to acquire purchasing power now.
a. prefer to have goods now rather than two years from now.
37. (I) Essentially, the interest rate is the market price of earlier availability.
(II) The interest rate can be defined as the price of loanable funds.
a. Both I and II are true.
b. I is true; II is false.
c. I is false; II is true.
d. Both I and II are false.
a. Both I and II are true.
38. Ryan must decide whether or not to go to law school. He knows that he can earn $50,000 per year with his bachelor’s degree, but he expects to earn a minimum of $58,000 per year with the law degree. An economist would advise him to
a. take the job that just requires the bachelor’s degree.
b. go to law school, but only if he can finish within 3 years.
c. go to law school.
d. consider costs, revenues, and any nonmonetary job considerations he might have also.
d. consider costs, revenues, and any nonmonetary job considerations he might have also.
39. (I) There can never be economic profit in a competitive market.
(II) Uncertainty and entrepreneurship are sources of economic profit.
a. Both I and II are true.
b. I is true; II is false.
c. I is false; II is true.
d. Both I and II are false.
c. I is false; II is true.
40. In a world of perfect knowledge and communication, competitive markets, and no uncertainty,
a. there would be neither economic profits nor economic losses.
b. economic profits would exist, but losses would be eliminated.
c. economic profits and losses would exist to a greater degree than presently is the case.
d. there would be economic profits; there is not enough information to comment on economic losses.
a. there would be neither economic profits nor economic losses.
41. If a nation is going to benefit fully from technological advances and entrepreneurial ideas, it must
a. be relatively easy for persons from diverse backgrounds to try out their ideas at a relatively low cost.
b. have a mechanism that will bring unsound projects to a halt.
c. have a central investment authority that will review projects and decide which should be undertaken.
d. be both a and b.
d. be both a and b.
42. (I) Efficient investment in both human and physical capital is an important source of productivity and income growth.
(II) Other things constant, countries that focus on current consumption will tend to have higher incomes in the future.
a. Both I and II are true.
b. I is true; II is false.
c. I is false; II is true.
d. Both I and II are false.
b. I is true; II is false.
43. If complete equality of income were legislated, which of the following would economics predict?
a. People would become richer.
b. Society would gain utility from the extra goods produced.
c. Individuals would willingly work longer hours and thus produce more.
d. The incentive to produce and perform efficiently would be virtually eliminated.
d. The incentive to produce and perform efficiently would be virtually eliminated.
44. In a market economy,
a. there is a fixed economic pie to be divided among individuals.
b. differences in incomes provide individuals with an incentive to supply resources that are highly valued by others.
c. a central distributing agency carves up the economic pie and allocates slices to individuals.
d. both a and b above are true
b. differences in incomes provide individuals with an incentive to supply resources that are highly valued by others.
45. Compared to low-income families, upper-income families are likely to
a. be larger in size.
b. be headed by an adult of prime working age (between 35 years and 64 years).
c. have more than one family member working.
d. be all of the above.
d. be all of the above.
46. Compared to those with higher incomes, low-income families are more likely to
a. be headed by a person between 35 and 55 years of age.
b. have both a husband and a wife in the labor force.
c. be single-parent families.
d. be headed by a college graduate.
c. be single-parent families.
47. Which of the following contributed to the increase in income inequality among families in the United States during the 1980s and 1990s?
a. an increase in the highest marginal tax rates that forced high income earners to work more in order to maintain their income
b. an increase in the proportion of both single-parent and dual-earner families
c. a decrease in the size of the earnings differential between college graduates and high school graduates
d. all of the above
b. an increase in the proportion of both single-parent and dual-earner families
48. Income mobility
a. is a term used to characterize the ease of establishing residence or a business in a new area of the country.
b. has increased in recent years because of reductions in transportation cost.
c. is the term used to describe the movements up and down the economic ladder.
d. is present only when the general level of prices is rising.
c. is the term used to describe the movements up and down the economic ladder.
49. Data indicate that the large increase in government spending on income transfers that started with the War on Poverty during the latter half of the 1960s has resulted in
a. a substantial reduction in the poverty rate.
b. a more equal distribution of income.
c. fewer single-parent families because a married couple receives benefits twice as large.
d. little change in the official poverty rate.
d. little change in the official poverty rate.
50. Which of the following is true?
a. In recent decades, the volume of U.S. international trade has been increasing as a share of the economy.
b. As transportation costs decline, the volume of international trade will also tend to decline.
c. Most international trade is between the governments of different nations.
d. If one party to an international exchange gains, the other party must lose a similar amount.
a. In recent decades, the volume of U.S. international trade has been increasing as a share of the economy.
51. Opportunity costs differ among nations primarily because
a. nations employ different currencies.
b. nations have different endowments of land, labor skills, capital, and technology.
c. nations have different political institutions.
d. work-leisure preferences vary considerably from one nation to another.
b. nations have different endowments of land, labor skills, capital, and technology.
52. The law of comparative advantage explains why a nation will benefit from trade when
a. it exports more than it imports.
b. its trading partners are experiencing offsetting losses.
c. it exports goods for which it is a high-opportunity cost producer, while importing those for which it is a low-opportunity cost producer.
d. it exports goods for which it is a low-opportunity cost producer, while importing those for which it is a high-opportunity cost producer.
d. it exports goods for which it is a low-opportunity cost producer, while importing those for which it is a high-opportunity cost producer.
53. According to international trade theory, a country can gain if it
a. imports goods when they can be purchased cheaper from domestic producers.
b. imports goods when foreigners are willing to pay higher prices than domestic consumers.
c. specializes in producing those things it does best (produces at a low cost).
d. trades with high-income countries but not low-income countries.
c. specializes in producing those things it does best (produces at a low cost).
54. Compared to the no-trade situation, when a country imports a good,
a. domestic consumers gain, domestic producers lose, and the gains outweigh the losses.
b. domestic consumers lose, domestic producers gain, and the gains outweigh the losses.
c. domestic consumers gain, domestic producers lose, and the losses outweigh the gains.
d. domestic consumers gain, but domestic producers lose an equal amount.
a. domestic consumers gain, domestic producers lose, and the gains outweigh the losses.
55. Which of the following restricts the volume of international trade?
a. quotas
b. well-enforced property rights
c. a stable international monetary framework
d. an increase in the rate of economic growth
a. quotas
56. A tariff can be defined simply as a
a. tax on imports.
b. tax on exports.
c. legal limit on imports.
d. legal limit on exports.
a. tax on imports.
57. Which of the following would be expected if the tariff on foreign-produced shoes were decreased?
a. The domestic price of shoes would fall.
b. The supply of foreign shoes to the domestic market would decline, causing shoe prices to rise.
c. The number of unemployed workers in the domestic shoe industry would decline.
d. The demand for foreign-produced shoes would decrease, causing the price of shoes to increase in other nations.
a. The domestic price of shoes would fall.
58. A tariff differs from a quota in that a tariff is
a. levied on imports, whereas a quota is imposed on exports.
b. levied on exports, whereas a quota is imposed on imports.
c. a tax levied on exports, whereas a quota is a limit on the number of units of a good that can be exported.
d. a tax imposed on imports, whereas a quota is an absolute limit to the number of units of a good that can be imported.
d. a tax imposed on imports, whereas a quota is an absolute limit to the number of units of a good that can be imported.
59. A basic problem with the infant-industry argument is that
a. most industries need protection when they are mature, not when they are first established.
b. the amount of the tariff is unlikely to have much impact on the success of an infant industry.
c. political pressure will likely prevent the withdrawal of the tariff when the industry matures.
d. domestic consumers will continue to buy the foreign products anyway, regardless of the tariff.
c. political pressure will likely prevent the withdrawal of the tariff when the industry matures.
60. Which of the following is a partially valid economic argument for restricting free trade?
a. Restrictions on foreign trade will increase employment and permanently reduce unemployment.
b. Removal of restrictions that have existed for years will initially cause inflation.
c. Infant industries need permanent protection to develop and gain productive efficiency.
d. A nation needs to protect industries that are vital to national defense in case of future international conflict.
d. A nation needs to protect industries that are vital to national defense in case of future international conflict.
61. Free trade with low-wage countries like China and India causes the wages of U.S. workers to fall because
a. U.S. workers are unable to compete with cheap foreign labor.
b. this type of trade will reduce the output (and consumption possibilities) of the United States.
c. U.S. workers are less productive than workers in China and India.
d. This is a trick question because free trade with these countries will not cause a general reduction in U.S. wages.
d. This is a trick question because free trade with these countries will not cause a general reduction in U.S. wages.
62. If labor-intensive textile products could be produced more cheaply in low-wage countries than in the United States, the United States would gain if it
a. levied a tariff on the goods produced by the cheap foreign labor.
b. subsidized the domestic textile industry so it could compete in international markets.
c. used its resources to produce other items while importing textiles from foreigners.
d. levied a tax on the domestic textile products to penalize the industry for inefficiency.
c. used its resources to produce other items while importing textiles from foreigners.
63. Countries that impose high tariffs, exchange rate controls, and other barriers that restrict international trade have, on average,
a. high rates of economic growth.
b. low rates of economic growth.
c. a large export sector.
d. a large import sector.
b. low rates of economic growth.
64. In Figure 1, in the absence of trade, the domestic price of shoes would be Pn. If the United States moved from a no-trade situation to free trade, which of the following would happen?
a. The domestic price of shoes would rise, and domestic consumption would fall.
b. Both the domestic price of shoes and domestic consumption would rise.
c. Both the domestic price of shoes and domestic consumption would fall.
d. The domestic price of shoes would fall, and domestic consumption would rise.
d. The domestic price of shoes would fall, and domestic consumption would rise.